Why Hewlett-Packard and GameStop Jumped Today

The S&P 500 closed above 1,900 for the first time, and Hewlett-Packard and GameStop both rallied after earnings. Here's why:

May 23, 2014 at 10:00PM

Stocks went out with a bang heading into the three-day weekend as positive housing news lifted all three major indexes, and the S&P 500 closed above 1,900 for the first time ever. Meanwhile, the Dow Jones Industrial Average (DJINDICES:^DJI) rose 63 points, or 0.4%, while the Nasdaq finished up 0.8%. 

Following yesterday's existing home sales report, which showed that category rising for the first time this year, April new home sales were reported today up 6.3%, to 433,000, and March's figure was revised up 6%, to 407,000. Economists had expected April new home sales to total just 415,000.  Homebuilder stocks jumped on the news, which seems to indicate the housing market is continuing to improve following a lull during the cold winter months, but new home inventories also hit a three-and-a-half year high, at 192,000, or the equivalent of 5.3 months of sales, which could slow down construction, or bring down prices.

Among stocks making headlines today was Hewlett-Packard (NYSE:HPQ), which gained 6.1% after reporting earnings and announcing job cuts. Shares of HP were actually trading down after hours yesterday, but opened in positive territory today and continued to move higher as investors seemed to see the layoffs as a positive. CEO Meg Whitman said on the earnings call that the company would eliminate 16,000 jobs on top of 34,000 cuts previously announced, though she didn't see the need for further layoffs. Despite posting another sales decline, revenue fell just 1%, and the PC maker saw earnings per share improve 18%, from $0.55 to $0.66, a sign that Whitman's strategy is paying off. For the current quarter, HP forecast EPS of $0.86-$0.90 against estimates of $0.90. Shares of the tech mainstay have nearly tripled since bottoming out a year-and-a-half ago, but the company may need to find a source of stable revenue growth for shares to push higher.     


Elsewhere, GameStop (NYSE:GME) shares were gaining after its earnings report beat expectations, finishing up 4%. The volatile video game retailer was aided by the recent release of the Xbox One and PlayStation 4 consoles, and its EPS jumped 28%, to $0.59 per share, ahead of estimates at $0.57. Revenue increased 7%, to $2 billion, but fell short of the consensus at $2.02 billion. GameStop's results can fluctuate wildly as the company is highly dependent on the current video game market, and sales rise and fall with the release of new systems and games. For the current quarter, the company expects an EPS of $0.12-$0.20, and maintained its full-year EPS guidance at $3.40-$3.70. Analysts had projected $0.17 and $3.70, respectively. For investors looking for a company committed to returning cash to shareholders, and who can stomach some volatility, GameStop could be a good bet.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of GameStop. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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